June 13, 2012

Last month, Eric Mackres and Sara Hayes of the American Council for an Energy-Efficient Economy published an extensive report detailing the various funding sources used by local energy efficiency programs.  I definitely recommend reading  Keeping it in the Community: Sustainable Funding for Local Energy Efficiency Initiatives. But, if you don’t have time, I thought you should at least know what options are out there if you’re interested in starting an energy efficiency program in your community.

So, here’s a basic summary of the types of funding sources--both seed and recurring:

Grants

In this context, a grant is an award from the Federal Government to a state, county or city. Although a grant doesn’t have to be repaid, there is usually a rigorous application process.  The most significant grant in the home performance category is the Energy Efficiency Conservation and Block Grant (EECBG), which was part of the American and Recovery Reinvestment Act of 2009. EECBG funds distributed to large cities and counties have totalled more than $2.7 billion to date. Further, these grants have funded a wide range of activities--from program planning to seeding revolving loan funds.

Bonds

A bond is a type of debt instrument whereby investors loan money to local governments for a certain period of time, and in return, are repaid the loan principal with interest.  Typically, local governments use their general funds (i.e. taxes) to pay the bond at the date of maturity.  Through the Qualified Energy Conservation Bonds tax credit, the Federal Government encourages local governments to issue bonds to fund efficiency programs by giving them a tax credit that offsets the interest on the bond.

Taxes

The most common practice is for a state or local government to impose a tax on certain energy-related activities, such as consuming energy or emitting carbon dioxide, and use the revenue to pay for efficiency programing.  However, Mackres and Hayes note that some towns are looking beyond “energy-related” activities and are considering taxing casinos as a way to pay for efficiency programs.

Fees

Communities may impose fees on waste, recycling, water, and rights-of-way, and like taxes, commit the revenue to energy efficiency initiatives.   The most popular fees, as noted by Mackres and Hayes, are franchise fees and systems benefit charges.

A “franchise fee” is paid by a private company to a local government in exchange for its use of a public-right of way or other type of infrastructure in conducting its business.

A “systems benefit charge” is when a utility adds a fee to a customer’s gas or electric bill. There are a few different arrangements with regard to systems benefit charges. Some investor-owned utilities partner with local governments to offer energy efficiency programs in a collaborative venture. On the other hand, some utilities simply give the proceeds derived from the systems benefit charge to local governments who in turn establish an efficiency trust to be administered by a 3rd party.

Benefit Districts

We’re all well aware that municipalities and counties tax residents and use the revenues to pay for things like police departments, sewer, street lighting and the like. Revenues from municipal taxes are usually applied to the city or county as a whole--not to particular neighborhoods.

But, what happens when a particular neighborhood wants to do a special project or offer an additional service?  Many states have enacted enabling legislation that allows property owners to band together and collect fees, so long as revenues stay within the neighborhood, which is called a benefit district. Most often funds derived from a benefit district go to things like removing graffiti or cleaning streets.

With regard to energy efficiency services, though, communities have created what’s called an “ecodistrict,” which is a type of benefit district. The fees collected from property owners are used to set target goals for energy reduction, help pay for energy efficiency upgrades, and/or track performance across the district.

Conclusion

Mackres and Hayes did a wonderful job aggregating and explaining all of the funding options used for local energy efficiency initiatives. It’s important to keep these options in mind when you think about what you can do in your town or community to improve our housing stock, reduce greenhouse gasses, and increase our energy security. Feel free to share your thoughts in the comments below!